AFP reported that oil prices slumped hit by renewed concerns over European debt and weak Chinese output data while the market waited to see if a new volcanic ash cloud would hit demand for aircraft fuel.

New York's main contract, light sweet crude for delivery in July shed USD 2.48 to USD 97.62 per barrel. Brent North Sea crude for July sank USD 2.62 to USD 109.77 per barrel in early London trade.

Mr Bjarne Schieldrop senior commodities analyst at Swedish financial group SEB said that continued and growing concerns for the European debt situation as well as a disappointing China are the main driver for prices at the start of the week.

Preliminary HSBC data showed that Chinese manufacturing eased to 10 month low in May, fuelling fears of a slowdown in the world's number 2 economies.

The bank said in a statement that the HSBC China Purchasing Managers Index slipped to 51.1 last month the lowest since July 2010 from a final reading of 51.8 in April. A reading above 50 indicates the sector is expanding while a reading below 50 indicates contraction. Elsewhere the dollar firmed against the euro after Greece's credit rating was slashed, renewing fears over the euro zone debt crisis.

Fitch Ratings had on Friday lowered Greece's credit ratings by three notches, citing its growing problems in getting its public finances in order. A stronger greenback makes dollar denominated crude futures more expensive for holders of other currencies, impacting demand for oil.

Demand for jet fuel could meanwhile be hit after ash from an Icelandic volcano threatened to shut European airspace. The Grimsvoetn volcano began erupting late on Saturday and was heading towards Britain and France.

It follows the eruption in April 2010 of Iceland's Eyjafjoell volcano and whose ash caused the planet's biggest airspace shutdown since World War II with more than 100,000 flights cancelled and eight million passengers stranded.

(Sourced from AFP)